Effect of commercial Banks development on economic growth of Ethiopia.

Abstract

Financial institutions, especially the banking sector plays a crucial role in models of economic growth. It is an essential component of investments; bank Profit/Loss, banks deposits, banks advances and Interest Earning have considerable effect on economic activity and long-term economic growth. The view that, strong financial sector performance has the key to economic growth was reflected in the development strategies and plans in many countries. In Ethiopia, the development of the financial sector is limited, the contribution to GDP is also very low, and most of the banks attention is on similar services and commercial activities in the domestic banking areas rather than diversified and international banking services. The general objective of this study is to evaluate the Effect of the banking sector development for the growth of Economic growth of the Ethiopia, it evaluate or measure the effects of indicators of commercial banks development more specifically deposits, Asset ,loan and advances and profitability on GDP. To achieve the objectives of the study quantitative research approach were used. Secondary source of data was employed through panel data analysis for the total number 10 years of commercial banks covering from 2011 - 2020 G.C. The collected data were analyzed with the use of the SPSS (statistical package for the social sciences) program 20v and STATA. The percentage, mean, standard deviation, coefficient of variation, correlation and multiple regressions were utilized. The finding of The fixed effect model result of Profitability (ROA) of commercial banks (p=0.233) is significantly associate with level of GDP . The result of Loan and advance (p=0.00) in the research also significantly associate with GDPAs per the study the size of the banking sector (Asset) (p=0.000) this also significantly associate GDP. The result of Deposit of commercial banks (p=0.000) really associate with the GDP.